January 24, 2022

Bucks Blog: When Good Drivers Pay More for Insurance Than Bad Ones

Some big insurance companies charge higher auto rates for lower-income drivers, even if the drivers have safe driving records, an analysis from the Consumer Federation of America finds.

The federation, a nonprofit comprising 250 consumer groups, has argued that insurers often give nondriving-related factors, like occupation and education, more weight than driving-related factors, and that such practices unfairly penalize lower- and moderate-income drivers. Occupation and education, the federation says, are proxies for income.

In its latest report, the federation obtained insurance quotes in 12 different cities from the public Web sites of five big auto insurers, using information for two hypothetical women. The insurers — State Farm, Allstate, Geico, Farmers and Progressive — represent more than half of the private auto insurance market, the federation said.

Both drivers shared certain characteristics: Each was 30 years old; had been a driver for 10 years; lived in a ZIP code with a median income of $50,000; owned and drove a 2002 Honda Civic; drove 7,500 miles per year; and carried the minimum auto liability insurance required by state law (minimums vary from state to state).

The first driver, however, was a single receptionist with a high school education who had a 45-day gap in her insurance coverage, but had never had an accident or moving violation. (Gaps in coverage often occur because drivers can’t afford their premiums, said Robert Hunter, the federation’s director of insurance and a former Texas state insurance commissioner.)

The second driver was a married executive with a master’s degree who owned a home, had continuous insurance coverage and one at-fault accident with $800 of damage in the last three years.

In two-thirds of the 60 quotes, the receptionist was quoted higher premiums, even though her driving record was clean. And in more than three-fifths of the cases, the premium quoted the receptionist exceeded the quote for the executive, who wasn’t as safe a driver, by at least 25 percent.

The federation argues that “largely uncontrollable” factors, like education and occupation, are often given greater weight in rate setting than actual losses.

Robert Passmore, senior director of personal lines for the Property Casualty Insurers Association of America, said in a telephone interview that it was reasonable to use such factors because “they are predictive of loss.”  Different insurers give different weights to different factors, he said, depending on what they saw as the best way to predict a given driver’s risk.

During a conference call with reporters, Mr. Hunter and Stephen Brobeck, the federation’s executive director, were asked why the analysis didn’t include smaller automobile insurers as well. They said it was because the analysis was time consuming and because the largest companies tend to offer the lowest rates, even though the federation still considered many of them to be unreasonably high for lower-income drivers.

The federation argues that the wide disparity in rates quoted, from company to company and market to market, suggests that the auto insurance market is not truly competitive, but the insurance industry rejects that position.

“Auto insurance provides important, cost-effective financial protection to millions of Americans, and most drivers have dozens of auto insurers constantly competing for their business,” said  Steven Weisbart, chief economist for the Insurance Information Institute, an industry group, in a prepared statement. “The price is risk-based and always will be.”

The federation’s analysis found that in every case, Geico and Progressive quoted the safe driver — the receptionist — a higher premium than the driver who had caused an accident. In several cases, companies refused to provide a quote to the “good” driver, but offered one to the executive.

“We work to price each driver’s policy as accurately as possible, so that every driver pays the appropriate amount based on his or her risk of having an accident,” said Jeff Sibel, a spokesman for Progressive, in an e-mail.  “We use multiple rating factors, which sometimes include nondriving factors that have been proven to be predictive of a person’s likelihood of being involved in a crash.”

Geico didn’t respond to an e-mail seeking comment.

State Farm, however, charged the receptionist (the good driver) less than the bad driver in all 12 cities. In addition, in all the markets, State Farm’s quotes were either the lowest or the second lowest.

That suggests, said Mr. Hunter, that State Farm gives less weight to nondriving factors than other companies. A State Farm representative declined to comment.

Mr. Hunter said states should insist that insurance companies make the factors used in setting their rates transparent, so consumers know how their applications for coverage were being considered.

Do you think factors like education and occupation should be used to set auto insurance rates?

Article source: http://bucks.blogs.nytimes.com/2013/01/29/when-good-drivers-pay-more-for-insurance-than-bad-ones/?partner=rss&emc=rss

Bucks Blog: When Good Drivers Pay More for Insurance than Bad Ones

Some big insurance companies charge higher auto rates for lower-income drivers, even if the drivers have safe driving records, an analysis from the Consumer Federation of America finds.

The federation, a nonprofit comprising 250 consumer groups, has argued that insurers often give nondriving-related factors, like occupation and education, more weight than driving-related factors, and that such practices unfairly penalize lower- and moderate-income drivers. Occupation and education, the federation says, are proxies for income.

In its latest report, the federation obtained insurance quotes in 12 different cities from the public Web sites of five big auto insurers, using information for two hypothetical women. The insurers — State Farm, Allstate, GEICO, Farmers and Progressive — represent more than half of the private auto insurance market, the federation said.

Both drivers shared certain characteristics: Each was 30 years old; had been a driver for 10 years; lived in a Zip code with a median income of $50,000; owned and drove a 2002 Honda Civic; drove 7,500 miles per year and carried the minimum auto liability insurance required by state law (minimums vary from state to state).

The first driver, however, was a single receptionist with a high school education who had a 45-day gap in her insurance coverage, but had never had an accident or moving violation. (Gaps in coverage often occur because drivers can’t afford their premiums, said Robert Hunter, the federation’s director of insurance and a former Texas state insurance commissioner.)

 

The second driver was a married executive with a master’s degree who owned a home, had continuous insurance coverage and one at-fault accident with $800 of damage in the last three years.

In two-thirds of the 60 quotes, the receptionist was quoted higher premiums, even though her driving record was clean. And in more than three-fifths of the cases, the premium quoted the receptionist exceeded the quote for the executive, who wasn’t as safe a driver, by at least 25 percent.

The federation argues that “largely uncontrollable” factors, like education and occupation, are often given greater weight in rate setting than actual losses.

Robert Passmore, senior director of personal lines for the Property Casualty Insurers Association of America, said in a telephone interview that it was reasonable to use such factors because “they are predictive of loss.”  Different insurers give different weights to different factors, he said, depending on what they saw as the best way to predict a given driver’s risk.

During a conference call with reporters, Mr. Hunter and Stephen Brobeck, the federation’s executive director, were asked why the analysis didn’t include smaller automobile insurers as well. They said it was because the analysis was time consuming and because the largest companies tend to offer the lowest rates, even though the federation still considered many of them to be unreasonably high for lower-income drivers.

The federation argues that the wide disparity in rates quoted, from company to company and market to market, suggests that the auto insurance market is not truly competitive, but the insurance industry rejects that position.

“Auto insurance provides important, cost-effective financial protection to millions of Americans, and most drivers have dozens of auto insurers constantly competing for their business,” said  Steven Weisbart, chief economist for the Insurance Information Institute, an industry group, in a prepared statement. “The price is risk-based and always will be.”

The federation’s analysis found that in every case, GEICO and Progressive quoted the safe driver — the receptionist — a higher premium than the driver who had caused an accident. In several cases, companies refused to provide a quote to the “good” driver, but offered one to the executive.

“We work to price each driver’s policy as accurately as possible, so that every driver pays the appropriate amount based on his or her risk of having an accident,” said Jeff Sibel, a spokesman for Progressive, in an e-mail.  “We use multiple rating factors, which sometimes include nondriving factors that have been proven to be predictive of a person’s likelihood of being involved in a crash.”

Geico didn’t respond to an e-mail seeking comment.

State Farm, however, charged the receptionist (the good driver) less than the bad driver in all 12 cities. In addition, in all the markets, State Farm’s quotes were either the lowest or the second lowest.

That suggests, said Mr. Hunter, that State Farm gives less weight to nondriving factors than other companies. A State Farm representative declined to comment.

Mr. Hunter said states should insist that insurance companies make the factors used in setting their rates transparent, so consumers know how their applications for coverage were being considered.

Do you think factors like education and occupation should be used to set auto insurance rates?

Article source: http://bucks.blogs.nytimes.com/2013/01/29/when-good-drivers-pay-more-for-insurance-than-bad-ones/?partner=rss&emc=rss

Bucks Blog: Impatient? It May Be Hurting Your Credit Score

A reproduction of the Stanford marshmallow experiment.CBS MinnesotaA reproduction of the Stanford marshmallow experiment.

Remember when you were a kid and your parents harped on the importance of “delayed gratification” to get ahead in life? (You know: Put that birthday money in the piggy bank and save for something nice, instead of blowing it all now on Milky Way bars.)

Well, it turns out that your propensity to wait (or not) is also reflected in your credit score, according to a study from researchers at Columbia and Stanford published online in Psychological Science, a journal of the Association for Psychological Science. (Here’s a link to the press release, though the journal itself is behind a pay wall.)

Patient people, the study found, tend to have higher credit scores than those who just can’t wait. “Individuals who are more willing to delay gratification have significantly higher FICO scores,” the report concluded.

In the study, researchers recruited 437 low- to moderate-income people from a Boston community tax-preparation center. Participants consented to give researchers access to their credit reports and FICO scores ( a number from 300 to 850 based on credit history). Participants were given a series of questions meant to gauge their willingness to delay a reward. For instance, they were asked if they would rather have $70 now, or $80 in a month.

Participants who were the most willing to wait for the bigger payout had FICO scores that were roughly 30 points higher than those who were least willing to delay, the study found. (The correlation held, regardless of income and other factors). Those who were the least willing to delay fell below the subprime credit score cutoff of 620, below which people generally pay much higher borrowing costs.

Stephan Meier of Columbia Business School, one of the study’s authors, said the report is sort of an adult, financial version of the “marshmallow studies” done with children, in which kids were left alone in a room with a single marshmallow but told they could have two to eat if they waited until the researcher returned. (Follow-up studies, he said, found that the kids who waited tended to do better in school later on).

Obviously, for some people, the loss of a job or a divorce can have a bigger impact on their credit score than their level of patience. But still, for individuals, Professor Meier said, the findings suggest that those who have trouble postponing rewards might want to consider tactics like automating their monthly credit-card payments to reduce the temptation to pay just the minimum balance.

“I have some problems in this area with food,” he said. “So I make sure my fridge isn’t full.”

Do you have steps you take to overcome your impatient tendencies?

Article source: http://feeds.nytimes.com/click.phdo?i=450654a16452f11dddcad1087e1c821e

Mortgages: Counseling Before Borrowing

“There’s this thing that the dream of homeownership in America is dead, and we’re not seeing that,” said Ms. Grier, the chief executive of Neighborhood Housing Services of New York City, which promotes affordable housing and is one of several groups that counsel homeowners and would-be homeowners. “We’re still seeing families interested in wanting to own their own property.”

The nonprofit GreenPath Debt Solutions, a counseling agency that has several offices in New York and provides telephone support nationally, is also seeing a steady stream of activity. Its goal is to teach about money management, mortgages, the closing process and homeowner responsibilities, “so first-time home buyers can make an informed decision,” said Setina Briggs, the housing program manager.

Barry Zigas, the director of housing policy at the Consumer Federation of America, said counseling wasn’t an absolute necessity “to become a competent, well-educated consumer.” But it’s time worth spending, he argued. A home purchase is “the sort of transaction you ought to enter into with as much information as you can.”

Prepurchase education, although traditionally aimed at low- and moderate-income first-time buyers, is available to anyone. Some loan offerings, like New York City’s HomeFirst Down Payment Assistance Program, require that people go through training to participate.

In the wake of the financial crisis, there has been plenty of debate about whether there was too much emphasis on homeownership and whether people who never should have bought were pushed into risky loans. Supporters of prepurchase education, including lenders, say that it reduces the chance that borrowers will get in over their heads.

But a recent study conducted for the Mortgage Bankers Association found that there has been little scientifically rigorous research to prove that claim. Still, Ms. Grier and others cite their positive experiences — her agency, for instance, reviewed the records of about 250 families who had gone through counseling from 2005 to 2008. “We did not find anyone who lost their homes due to being in a bad mortgage product,” she said. Those who did face problems did so because their income had decreased.

Families coming to counseling now say they want to avoid making the mistakes that brought others to the brink, she said. And those going through foreclosure counseling frequently say they wish they had learned the ins and outs of ownership before buying.

Sometimes counseling involves a one-on-one review of finances, in person or over the phone. That can be buttressed with classes — Neighborhood Housing Services, for instance, has a 10-hour program. Some agencies are experimenting with online education.

Whatever the format, prepurchase education comes at little or no cost to the consumer — most agencies charge $25 or $50 to pull a credit report and for study materials. The counseling programs are usually financed by a mix of philanthropy, support from lenders and government money.

The government financing is shaky, however: in April, during Congressional talks to avoid a government shutdown, $88 million was cut from the Department of Housing and Urban Development’s counseling budget. (HUD-approved counselors can be found at the HUD Web site.)

Programs probably won’t be eliminated until at least the end of September, said Eileen Fitzgerald, the acting chief executive of NeighborWorks America, a nonprofit group. Ms. Briggs said that agencies like hers were adequately staffed. A consumer ready for counseling “could pretty much get in the next day,” she added.

Article source: http://feeds.nytimes.com/click.phdo?i=fe27a59894cc1eee6fa6043022555f5f